“The financial services industry has been visibly transformed by software over the last 30 years. Practically every financial transaction, from someone buying a cup of coffee to someone trading a trillion dollars of credit default derivatives, is done in software. And many of the leading innovators in financial services are software companies (…).” Marc Andreesen, in WSJ

FinTech Innovation, special wealth management / robo advisers have seen a rise of implications of financial technology in its core business models. Its growing impact on the global banking wealth management industry just started, but the whole industry is going through an irreversible technological mutation that is affecting all its core functionalities – processes, regulation, automation, dashboards and data.

Wealth managers and robo advisers are fast forward moving and standing at the epicenter of a Fintech / structural tectonic shift, as the balance of influence / power between offering and demand of its products / services undergoes a dramatic upheaval, special in the ways the wealth management / asset management industry has been operating so far. Regulators worldwide are adapting towards these new events and technologies and pushing toward a ‘constrained offering’ norm while institutional clients, private clients, retail and independent advisors demand a much more proactive role. In this new landscape wealth management practitioners need to examine this fintech banking and wealth management evolution in detail to understand the new evolving mechanisms at work and its deep implications.

The emergence of a new automation service for wealth and asset management

Over the last 10 years, the wealth management / asset management saw the emergence of a new automation service for wealth and asset management. This related fast growing segment of FinTech has started to operate big changes and has received a lot of attention, and let us say it a substantial share of controversy. This new emerging sector is deeply technological and based in UI and user automated investment / wealth services – “robo advisors.”

These technology-backed automated platforms advisors were built on the follow up of the evolution of social media and the advance of user interfaces such as Apple, Google and so forth. These new services and platforms were build by financial organisation, mostly initial fintech startups marginals on the premise that many of the activities performed by a Registered Investment Advisor (RIA) could be replicated by sophisticated algorithms and advanced intuitive software easy to use by financial investors. These platforms – robo advisers promise lower costs, simplicity and even the lower margin costs, bonus potential of making investing easier for retail users and get into its DNA some kind of gamification.

At the moment some companies have grown fast, and fintech organisation – robo-advisors – very well funded mostly by Silicon Valley VC elite have been creating some milestones in investors user base and have big assets under management. The most well known cases worldwide are Betterment, Wealthfront (in the US) and Nutmeg and MoneyFarm in UK and Europe and they have accomplished something that 99% of fintech startups never did – turning a difficult and complex idea into solid companies that are growing, thriving, and has the chance to be a permanent fixture in its industry. Also these companies have been setting the example for the whole industry.

Robo Advisers growth and Case studies

This success pushed the fact, that the $4.7 trillion wealth management giant BlackRock just acquired FutureAdvisor, and started pushing this into their core business. Future Adviser is another fintech robo advisor platform with $600 million under management. Vanguard has also moved with success to this strategy.

Robo advisors were initially created to appeal to the new set of investors that have been used to manage better platforms for trading and investing such as Saxo Bank, IG, FXCM and of course familiar with the good UX and UI of Apple services, Google and alikes. Also these companies have been trying to target a segment of population the millennials that have a strong trust in computers and technology adoption – a trust that for them would outweigh the loss of face to face interaction with an investor / financial advisor.

However as it turns out… a recent report conducted by Salesforce suggests that the majority of millennials actually do prefer having a financial or investment advisor. According to the report eighty-one percent wanted their financial advisor to either manage their money completely independently, or collaboratively with them compared to 86% for Gen-X’ers and 89% for Baby Boomers. So the irony is that this not that different through different generations. However the shift is irreversible special because investors want to use platforms that are easy to use and powerful to check their data real time. This of course does not means the financial advisers will disappear.

The current technological shift with accelerated Fintech innovative disruption, the emergence of the powerful Blockchain technology that is becoming a foundation for a ledger of everything of as Don Tapscott put it a trust tech-economy offers clear change and insight into what is happening when established economic interests collide with technological innovation and fast social transformation.

Financial business models are changing and will be changing faster than in any time of mankind history of money in so profound ways, and its impact reaches further than many players and the financial industry as whole expect. The fintech driven democratization of banking is now part of the core of the industry and it is revolutionising the wealth management / asset management industry toward a more more user friendly, efficient and client-centric tech, automated advisory processes, and keeping a rhythm and a pace with these mutations / changes that have become part of the financial DNA around the world.

The global adoption of social media platforms, tools, the emergence and still growing of the concept of big data analytics and special the 360 use of digital technology, IOE – Internet of Everything, blockchain technologies are still disrupting the banking / financial / wealth and asset management industry.

Blockchain, in its ideal incarnation, promises to revolutionise the way we transfer and store our most valuable assets.

It is transforming financial services and the speed and security with which we conduct transactions, as well as simplifying legal processes (via self-executing smart contracts), enhancing healthcare records and tightening national security.

New research from specialist outsourced services provider SEI suggests that 70 percent of decision makers in wealth management firms have not allocated specific resources to considering blockchain and the impact it could have on their business.

Global lenders including Citigroup, UBS, Barclays and Santander, are now experimenting with the technology to see how it can reduce costs and mitigate the risks within their own transactions.

“Blockchain is an intimidating topic and there’s a lot to manage between the promises and the delivery. It promises a profound transformation in work flows, reduction of capital risks, greater security and, ultimately, it could lead to many cost efficiencies for wealth management.” Susan Ramonat, blockchain program lead and chief risk operator at SEI.

Summary

This massive changes / mutations are already underway, but still in its disruptive inception. Some of the areas to look

The full scale depth and breadth of financial technologies and how its now core to the financial industry as a whole

The issues with reg tech, basic compliance and how regulations are driving changing financial business models;

The shifting new demands from investors, their needs, models and segments and why they may become the price-makers;

The irreversible forces of change at work behind the rise of FinTech;

The cyber security issues and how to deal with that;

The emergence of new fintech players that will disrupt traditional companies;

The emergence of Blockchain and how it is changing the full society and special the financial industry and governments.

This phrase from Paolo Sironi, taken from his last book FinTech Innovation: From Robo-Advisors to Goal Based Investing and Gamification (The Wiley Finance Series), that is going to be launch in August 29, 2016 highlight the complex layers we are talking:

Information asymmetry has dominated the banking industry for centuries, keeping the bank/investor liability neatly aligned—but this is changing, and understanding and preparing for the repercussions must be a top priority for wealth managers everywhere. Financial Innovation shows you where the bar is being re-set and gives you the insight you need to keep up.

Bellow a presentation I did about this topic that illustrates my views, with data sources, numbers, and contextualises the challenges and opportunities for the wealth management, asset management, robo adviser industry:

Hi HedgeThink! Thanks for this fantastic article, specially with the clarification that Wealth Management Advisers will not disappear. This has been the talk of the industry lately at continuing education events around the state of Florida and Illinois. There are many advisers that are somewhat worried or considering completely changing their approach due to the Robo Advisory Growth.

Lately, Financial advisers push changes that require so many touch points to get approval from a client. Whether, the adviser is fee-based or commission-based, it is easy to understand why so many people are willing to give this new trend or fin-tech platform a try.

At Forem Investments, a Wealth Management Miami firm, we tell our High Net Worth clients to give it a try with a very small investments to better understand how the system works. Per their management and algorithm understandings, we have seen about a 15% increase in communication and interaction with our clients, as well as a 10% increase in assets managed.

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